EDITORIAL: The Federal Board of Revenue (FBR) during a meeting with a World Bank mission revealed that it increased clearance of imports and exports through the green channel facility, defined as without physical examination of goods, from 35 to 66 percent.
In July 2020 percentage clearance through the green channel was 32 percent rising to 50 percent for containerized cargo by March 2021.
While no time period was given for the claim of 66 percent clearance through the green channel yet it does represent a slowdown.
In December 2011 FBR issued a Customs Risk Management System (RMS) to process imported goods falling under the categories of red (good declaration involving duty and tax remission for export, manufacturing bond, temporary import and export-oriented units), yellow (all items generating huge revenue), and green (all consignments of embassies and holders of free tax numbers).
In October 2015 Pakistan Customs ratified World Trade Organisation’s Trade Facilitation Agreement and in the finance bill 2019 further amended the RMS to facilitate its staff identify high risk imports/exports/transit transactions and enable them to focus their resources on those while easing clearance for low risk shipments through decreasing physical inspections (incidentally a tool that continues to be used by India as a non-tariff barrier to trade), thereby reducing dwell time, port congestion and reduce cost of doing business.
Periodic reports reveal that there has been misuse of the green channel facility though with the FBR declared as being responsible for loss of over 500 billion rupees of revenue per annum by several former finance ministers through complicity or poor management/supervision the jury is still out whether the true extent of misuse of the green channel is known.
In addition, there has been a visibly marked slowdown in the release of containers last fiscal year which stockpiled at major ports due to the decision of the government to impose administrative measures (including limiting advance payments for imports against letters of credit and advance payments up to a certain amount of the invoice, without letters of credit, for import of eligible items) and clearly noted in the August 2022 seventh/eighth review under the now lapsed International Monetary Fund’s (IMF) Extended Fund Facility Programme documents.
The objective of these measures: to address serious balance of payments issues due to the appallingly low foreign exchange reserves estimated at the time at less than 45 days of imports. The government pledged it would remove these restrictions by 30 June 2023, the scheduled end of the programme.
The IMF insisted on the removal of all administrative measures as a pre-condition for reaching a staff level agreement (SLA) on the 3 billion dollar nine-month Stand-By Arrangement (SBA).
The State Bank of Pakistan (SBP) issued a circular in this regard on 23 June 2023, prompting the Fund to announce the SLA on 29 June; however, the SBA documents uploaded on the Fund website on 18 July note the following statement attributed to Pakistan’s Director at the Board: “the authorities have requested temporary approval of exchange restrictions considering the limitation of advance payments for imports against letters of credit.
Both exchange restrictions and Multiple Currency Practices are non-discriminatory and are being maintained for balance of payment reasons, which we intend to remove by the end of the programme.” There is no clarity whether these restrictions will be gradually phased out or whether they will remain in place till April 12, the scheduled programme end hence all ongoing discussions on the failure of the government to implement the SBP circular, which may lead to suspension of the SBA are not valid.
It seems that the foreign reserves crisis would persist, notwithstanding the rollovers/additional deposits and multilateral and other bilateral borrowings, and hence existing restrictions will end only when the country is out of the woods.
Copyright Business Recorder, 2023